The Washington Post | January 11, 2017 Last year, more people wanted to buy homes and fewer people decided to sell, which made 2016 one of the strongest seller’s markets in recent years.

Unfortunately, 2017 looks to be more of the same. According to Doug Duncan, Fannie Mae’s chief economist, homeowners are staying in their homes longer, and the super-low interest rates we’ve seen since 2012 mean that it’s often less expensive to stay rather than downsize.

Low housing inventory means that prices will continue to rise. Rising interest rates mean affordability will be impacted, particularly for first-time buyers. So, if you’re planning to buy in 2017, be prepared for even higher prices and higher interest rates. Read more here.

The New York Times | December 21, 2016 MADRID — Europe’s highest court ruled on Wednesday that customers of banks in Spain can reclaim billions of euros because lenders did not pass on savings from interest rate cuts on variable-rate mortgages, sending shares in several of the country’s top lenders crashing.

The ruling centered on the use of a “floor clause” in Spanish mortgage contracts during the aftermath of the global financial crisis. Such agreements meant that the interest rate on an adjustable-rate mortgage was always held above a predetermined level, regardless of how low central bank rates fell.

Spain’s lenders began to use the clauses in 2009, after the global financial crisis pushed central banks around the world to slash interest rates. That helped preserve bank profit margins but failed to pass rate cuts on to customers beyond a certain level.

In 2013, Spain’s supreme court ruled that such deals were illegal, in part because the country’s banks did not adequately explain them to customers. The court did not, however, penalize lenders retroactively.

The European Court of Justice on Wednesday confirmed that the agreements were illegal, but went further by ruling that customers could claim reimbursement, without any time limit, for all payments made at a rate that was judged to be too high.

The decision, which cannot be appealed, means Spain’s banks could have to return 4.5 billion euros, or about $4.68 billion, to customers, according to Afi, a Spanish financial consultancy. Read more here.

Homeowners who rent rooms are facing additional scrutiny when applying for loans

The Wall Street Journal | August 29, 2016 Room-rental services such as Airbnb Inc. are blurring the line between residential and commercial property. That is causing problems for some homeowners looking to refinance mortgages. (Read what Airbnb hosts need to know.)

Big banks including Bank of America Corp. and Wells Fargo & Co. are subjecting some refinance customers who rent rooms to additional scrutiny. Some borrowers have been told they were no longer eligible for certain kinds of loans or would have to pay higher interest rates, according to the customers.

“This is kind of novel,” said Jeffrey Naimon, a consumer-finance attorney and partner at law firm BuckleySandler LLP. “I don’t think the market has gotten its arms around it.”

The issue for lenders is how to classify loans in the Airbnb age. Historically, that has been easy: A house usually was either a principal residence or an investment property. Mortgages on the latter are often viewed as riskier because owners had less of a personal connection to the house and rental income isn’t always reliable.

Now, the distinction isn’t so clear-cut. Online-rental services are spreading rapidly; Airbnb’s website had 455,223 active listings in the U.S. as of July, up 80% from a year earlier, according to research firm YipitData. That is posing challenges to lenders and frustrating some customers, illustrating how fast-paced technological change can reverberate in unexpected ways.

The issue comes up when borrowers report income from services such as Airbnb when applying for a new loan, often in hope of improving their credit profile. That, they hope, can lead to a better interest rate on a loan. Read more here.

The largest U.S. banks were penalized for their role in inflating a mortgage bubble that helped cause the financial crisis. Who got that money?

The Wall Street Journal | March 9, 2016 The nation’s largest banks paid fines totaling about $110 billion for their role in inflating a mortgage bubble that helped cause the financial crisis. Where did that money go?

In New York, the annual state fair is using bank-settlement money to build a new horse barn and stables. In Delaware, proceeds are being used to subsidize email accounts for local police. In New Jersey, a mortgage firm owned by a former reality-television star collected $8.5 million as a reward for reporting a bank’s misconduct.

Banks also helped tens of thousands of homeowners with their mortgages in neighborhoods from Jacksonville, Fla., to Riverside County, Calif., funded loans for low-income borrowers and donated to dozens of community groups and legal-aid organizations.

Yet some of the biggest chunks of money stayed with the entity that levied the fines in the first place. Of $109.96 billion of federal fines related to the housing crisis since 2010, roughly $50 billion ended up with the U.S. government with little disclosure of what happened next, according to a Wall Street Journal analysis.

The Journal reviewed the terms of more than 30 settlements, filed public-records requests with a dozen agencies at the federal and state level and spoke to dozens of homeowners and others who obtained payouts, tried to or were otherwise involved with the distribution of the settlements. The results represent the most detailed breakdown yet of the billions paid out in the unprecedented deals.

Out of the $110 billion, the Journal found that:

• The Treasury Department received almost $49 billion of the funds, including money the agency received directly and sums funneled to it by other departments, including government-chartered housing associations Fannie Mae and Freddie Mac. How the money is spent isn’t specified.

• About $45 billion was earmarked for “consumer relief,” a category that includes money dedicated to helping borrowers and funding housing-related community groups.

• The Justice Department, whose prosecutors led many of the negotiations with banks, collected at least $447 million. How it spends the money isn’t specified.

• States received more than $5.3 billion, usually to spend as they saw fit. Almost all states received payments from a national settlement in 2012 over mortgage-servicing abuses, and seven also received payments in the Justice Department’s blockbuster mortgage-securities settlements that started in 2013.

• Roughly $10 billion went to other recipients, including housing-related federal agencies, two federal agencies responsible for cleaning up failed banks or credit unions, and whistleblowers who helped the Justice Department. Some funds from these deals typically revert to the Treasury.

The White House said tens of billions of dollars have been recovered for American consumers since 2009, including funds that went to government agencies and programs and the Treasury, according o Deputy White House Press Secretaren Friedman.

The lack of detailed disclosure bothers some people. “The government has a responsibility to its citizens to be transparent about where its revenues are going,” said Aaron Klein, who focuses on financial regulation for the Bipartisan Policy Center in Washington, D.C. “When settlement funds just go into the black box of the general fund of the government, who is accountable?”

Bank executives grumble privately about the opaque process and are critical the government didn’t ensure more money went to housing-related issues.

Given the historic scope of the fines, the money “shouldn’t just be a slush fund,” said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry group.

The settlements arose from bank behavior prosecutors said fueled the housing crisis and aggravated its effects. Among other things, banks were accused of pushing expensive mortgages on unqualified borrowers, selling hundreds of billions of dollars of securities that they knew were likely toxic and filing fraudulent paperwork on people being booted from their homes.

The Journal analysis included fines paid by the four biggest U.S. banks— Bank of America Corp. , J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.—as well as investment banks Morgan Stanley and Goldman Sachs Group Inc. One settlement, the Justice Department’s $16.65 billion deal with Bank of America, was the biggest ever imposed by the U.S. government on a single entity.

The analysis excluded settlements from private lawsuits—including some investor suits that resulted in multibillion-dollar payouts—as well as fines levied on banks for conduct outside the housing and mortgage crisis.

Fines generally are funneled to the Treasury, which manages the federal government’s finances. There, the money goes into the government’s general fund, where it can be spent on any budgeted item, including employee salaries or reducing the deficit. The Treasury Department said the settlement money isn’t specifically tracked.

A spokesman, Rob Runyan, said the funds are “spent as Congress authorizes.”

Most of the money attributed to Treasury in the analysis came indirectly. Fannie Mae and Freddie Mac, which buy loans from lenders and package them into securities, and their regulator, the Federal Housing Finance Agency, collected more than $34 billion in fines. The bulk was transferred to Treasury, which spent $187.5 billion to bail out Fannie and Freddie during the financial crisis.

The housing companies said they have been profitable since 2012 and have together paid the Treasury about $246 billion in dividends.

There is precedent for broad use of penalties. Funds from a 1998 deal for tobacco companies to pay states an estimated $200 billion over 25 years, intended to help states pay for smoking-related health costs, have also been used to balance state budgets and to fund school reading programs, after-school services and infrastructure.

A Justice Department spokesman, Patrick Rodenbush, said the bank settlements “hold financial institutions accountable for various forms of fraud in the mortgage industry” and that the money compensated “government agencies and programs harmed by the banks’ conduct.”

In three major settlements analyzed by the Journal—$13 billion from J.P. Morgan Chase, $7 billion from Citigroup and the $16.65 billion from Bank of America—banks were censured for misleading investors about shoddy mortgage securities. The Justice Department played the lead role in doling out pieces to other agencies and states involved in the litigation, according to people involved in the lawsuits.

Seven states, most with attorneys general who played important roles in previous litigation against the banks, participated directly in those settlements and received funds for special projects and local residents.

In New York, Gov. Andrew Cuomo is using proceeds to help replace the Tappan Zee Bridge north of New York City, renovate the Port of Albany and provide high-speed Internet access in rural communities.

Last year, when Mr. Cuomo announced in a speech that the New York state fair would get $50 million for an overhaul, Troy Waffner, the acting director of the fair, jumped up and down and called his mother. The fair will use the funds for improvements like a bigger concert stage, making the grounds more accessible to the disabled and an equestrian facility with warm-water washing stations for the horses.

Some New York housing advocates said more money should have been directed to areas directly affected by the financial crisis. Mr. Waffner is among those who support a broader distribution. “The more money we can invest in bringing back the economy…I don’t think that’s a bad use of funds,” he said.

Gov. Cuomo’s office said his own $20 billion, five-year investment in affordable housing, homeless services and related programs, “far exceeds what the state has collected from financial settlements,” said Morris Peters, a spokesman for Mr. Cuomo’s budget office.

Most states have directed settlement funds to state pension plans, which oversee savings accounts for public employees such as teachers, judges and other government workers. Many of those funds had invested in mortgage securities that went sour during the crisis. California sent the bulk of its $700 million in bank penalties to its two biggest state pension funds. The office of state Attorney General Kamala Harris said it held back $28 million for itself “to support this and related litigation.”

Out of the $110 billion in settlements, the Justice Department retained at least $447 million, the Journal’s analysis showed. The department keeps up to 3% of most civil fines collected, in its Three Percent Fund. It isn’t required to disclose how much money it puts in the fund or how it is spent.

Last year, a report by the Government Accountability Office, the investigative arm of Congress, estimated the Three Percent Fund collected $158 million from all eligible civil fines in fiscal 2013.

Diana Maurer, a GAO director, said her office believes the Justice Department should develop better plans for the use of the Three Percent Fund. The Justice Department countered, according to Ms. Maurer, and said it wanted to avoid creating improper incentives for prosecutors.

“They did not want to plan out” the spending for the long term, Ms. Maurer said. “And we said, ‘No, you really should, this is hundreds of millions of dollars.’ ”

The Justice Department didn’t comment on the use of the fund.

Banks agreed to provide an estimated $45 billion from the settlements in the form of consumer relief.

For example, according to the independent monitor overseeing Bank of America’s $16.65 billion agreement—which sets aside $7 billion in consumer relief—the bank has so far modified mortgages for nearly 20,000 homeowners and made loans to more than 21,000 borrowers who are low-income, lost their previous homes to foreclosure or live in parts of the country hit especially hard by the housing crisis. The monitor, mediator Eric Green, said the bank has completed nearly 60% of its obligations.

Bank of America declined to comment beyond Mr. Green’s report.

Six years after the end of the recession, the housing sector is still on unsteady ground. Home prices have rebounded, but the weak pace of new home construction and a lack of first-time buyers raise concerns. A million homeowners or more are facing foreclosure, by industry estimates.

Massachusetts determined Karen Lojek, a staff accountant at a manufacturing company, had been harmed by a deceptive loan that violated state lending laws, according to the state attorney general’s office.

Ms. Lojek bought her Methuen, Mass., home in 2004. Her husband died soon after, leaving her struggling to make ends meet.

At the end of 2014 she learned she would receive $19,600, part of $80 million the Massachusetts attorney general’s office received in certain settlements.

The windfall only reduced her overall mortgage debt and didn’t cut her monthly payment of about $1,300, which is scheduled to climb when her interest rate resets in December.

Ms. Lojek estimated she now owes about $235,000 on the house, which is worth roughly $200,000.

“It just doesn’t make sense,” Ms. Lojek said. “With all the settlements that were made, I thought maybe it would all be fixed. How can I still be in this situation with everything that supposedly happened to correct the situation?” Read full WSJ article here. Where did the money go? Interactive site here.

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